Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes

Friday, 17/03/2023 | 13:33 GMT by Pierre Raymond
  • Fintech startups are beset by many challenges including, ironically, being too innovative.
  • However, opportunities for longevity exist if certain mistakes are not repeated.
Op-ed
Op-ed
Fiserv

Fintech firms have found themselves in an interesting space and time, and while many have written about the rise and success of these companies, it’s not without arduous challenges and failures that we have gotten to where we are today.

For more than a decade, fintech companies have grown from small-label startups to household names that now disrupt the once-stodgy financial services industry. Many entrepreneurs imagine success stories flowing from their innovative ideas, as they stand on the shoulders of those that laid the foundational work before them. And yet, failure is imminent and highly possible.

A report published by The Wall Street Journal found that around 75% of venture capital (VC) backed fintech startups fail. And, this large percentage is a testament to the number of fintech companies that have gone under in recent years despite their founders romanticizing their long-term success.

Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes
The number of fintech startups globally has been on the rise in recent years.

Self-starters, innovators, game changers, techies, enthusiasts and undertakers, you name them, they’ve all failed before somewhere along the line. Whether it’s failure due to mismanagement, underwhelming market demand, which is one of the top reasons startups fail according to CBInsights, or a lack of funding and investor interest: fintech enterprises do fail.

Every once in a while, we read of a fintech firm that once shuttered making a comeback, this time fueled with innovation and a strategy to overtake the industry, only for it to slowly fizzle out again. In an ever-growing competitive market where thousands of techies lost their jobs in recent months due to economic hardship, it’s often not a lack of innovation but rather a great deal thereof that has forced fintech to close down permanently.

Growing Too Big and Too Fast

Entering the fintech market at any given time can be hard, and for entrepreneurs with a stomach for failure, going too hard and too fast, in the beginning, can result in their demise.

Not all trailblazers will see their names in the hall of fame forever. This is not because they had the wrong product or service but often because they bit off more than what they could chew. We see this with a lot of fintech startups that once made it big.

The German-based neobank, Nuri, is a good example of this. The company, which was founded under the flagship name, Bitwala, offered customers euro current accounts, crypto wallets, and digital currency vaults. After enjoying a few successful years, the company announced it was closing in August 2022 and filed for insolvency.

The rise and fall of Nuri came at a time when the crypto market was seeing a peak in volatility . During this period, crypto buyers enjoyed the spike in digital currency prices such as Bitcoin, which hit a record high of $61,000 in November 2021, only to come crashing again a few weeks later.

Expanding at a rapid pace within a market that’s ever-changing and filled with risk and uncertainty, fintech entrepreneurs and startup owners often find themselves having to come face-to-face with the hard challenges that rapid growth can present to their companies.

Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes
The global e-commerce sector is expected to be worth $4 trillion by 2027.

Slow-Adapting Market

Constantly staying ahead of the curve is what fuels startup entrepreneurs. It allows them to break past their own boundaries, and always be a few steps ahead of their competitors if any even exist yet.

While constantly innovating and bringing new developments to the foreground is what helps to drive the industry and grow its influence, sometimes new products and services are introduced to a market not yet ready for them. Often, fintech companies fail because of low market demand for their products and services. However, at other times, the failure happens because their audience is not well-educated or versed on the new technology being introduced, especially concerning finances, leading to a slowdown in funding due to the higher propensity for failure.

Fintech in its entirety is relatively still in its infancy, and there’s a lot that startups need to bring to the market before we can see full-scale adoption across every region. While startups provide the infrastructure, information, tools and resources needed by their customers, they still find it hard to fully grasp how well their innovation will perform in a market that still has limited knowledge about them or find it hard to access and use them in their day-to-day lives.

An example of this situation, outside of fintech, is found in the electric vehicle (EV) industry. The first-ever hybrid car was designed and prototyped in 1900 by Ferdinand Porsche, which was 110 years before the launch of the Cayenne S Hybrid in 2010. Some automakers tried their hand at electric vehicles only to fail and witness the likes of Tesla and Rivian, among others, become market leaders almost overnight.

At the time, the lack of technology and advanced processing machinery held back other EV automakers. The market was very slow to adapt, too. However, today, as a result of government incentives and growing industry demand, manufacturers are switching to more sustainable alternatives and ditching fossil fuel engines. Markets slow in their adoption of innovation, regardless of existing economic performance, can crush companies and industries alike if the entrepreneurs behind them are not versatile and practical enough in their thinking.

Infrastructural Problems

Applications such as robo-advisors, peer-to-peer (P2P ) payments and lending apps, cross-border money applications, and investment or crypto trackers are some of the most common applications found in the fintech industry and are used by millions of consumers each day. However, while these feature-rich applications can control the way consumers conduct transactions and utilize their money, the failure to address specific issues within the infrastructure can have a detrimental effect on any startup, regardless of where they might be in terms of their funding growth. Releasing a product or service with underlying infrastructure issues not only spells doom for a startup but also carries long-term implications that can affect the entire industry.

Infrastructure problems, among other issues, are what led to the downfall of London-based fintech, Wonga, which permanently closed its doors in 2018. Providing short-term online cash loans to consumers, the platform relied on Artificial Intelligence (AI) and decision-making technology to automate risk modeling and its lending business.

However, after writing loans to more than 330,000 clients, it was later found that the AI technology used on Wonga's platforms was lending money to people who couldn’t afford to repay their loans. Later on, the company waived fees and interest payments for roughly 45,000 clients and was involved in numerous scandals throughout its short-lived existence. In the end, Wonga was forced to pay £2.6 million in compensation.

For any fintech startup, understanding how your infrastructure works, such as the technology and the software built on it, is critical to ensuring your longevity in the industry. Failure to address any infrastructural issue or to properly test the infrastructure beforehand not only sets the company up for failure but also puts competitors in a position to find practical solutions for the mishaps.

Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes
Using datasets relating to customer demands can help startups better monitor their performance.

Buyer Timeline Data

The time between when a fintech launches a new product and when it is purchased by a customer or consumer is considered to be the buyer timeline. This timeline helps a company to understand how long it will take before its products enjoy widespread adoption among consumers. It can also help a firm determine the interval or time lag between each consumer from the moment of exposure to final purchase.

There are a lot of quantifying data points that can help businesses properly understand what will influence buyers' behavior, what the market trends will look like in the coming years, and what is needed to strategize for a changing consumer market that requires more innovative and advanced products. These and other facets of the market can help fintech startups develop a range of products and ideas that can put them ahead of their competitors. Unfortunately, a lack of market demands and understanding thereof have seen startups often left in the dark during the period of inception and purchase.

Using datasets and information gathered from customers as it relates to their demand, and market trends can help startups better monitor their performance and track the overall application or usage of their products. However, this problem is more amplified among smaller fintech companies where access to this type of data is limited. For these companies, having a vague idea of what is happening in terms of the buyer timeline is an ongoing challenge that denies them insight into how they can make or adapt their products to be more market-oriented.

Reaching for Longevity

Launching the best and most innovative technology is not always the ticket to success as some fintech entrepreneurs think it to be. Uninformed decision-making and mismanagement of processes are two factors that can negatively influence the performance of advanced tech in a slow-adapting market.

While fintech itself has a range of promising qualities, there are still a lot of obstacles entrepreneurs need to overcome if they seek to have their companies become household names in the financial services industry.

Not everyone can do what fintech entrepreneurs do. Building a successful company is not without challenges and errors, but understanding where the needs of the market lie and addressing key issues with a full knowledge of how to build more versatile technology can form part of how fintech entrepreneurs can reach their goals.

Fintech firms have found themselves in an interesting space and time, and while many have written about the rise and success of these companies, it’s not without arduous challenges and failures that we have gotten to where we are today.

For more than a decade, fintech companies have grown from small-label startups to household names that now disrupt the once-stodgy financial services industry. Many entrepreneurs imagine success stories flowing from their innovative ideas, as they stand on the shoulders of those that laid the foundational work before them. And yet, failure is imminent and highly possible.

A report published by The Wall Street Journal found that around 75% of venture capital (VC) backed fintech startups fail. And, this large percentage is a testament to the number of fintech companies that have gone under in recent years despite their founders romanticizing their long-term success.

Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes
The number of fintech startups globally has been on the rise in recent years.

Self-starters, innovators, game changers, techies, enthusiasts and undertakers, you name them, they’ve all failed before somewhere along the line. Whether it’s failure due to mismanagement, underwhelming market demand, which is one of the top reasons startups fail according to CBInsights, or a lack of funding and investor interest: fintech enterprises do fail.

Every once in a while, we read of a fintech firm that once shuttered making a comeback, this time fueled with innovation and a strategy to overtake the industry, only for it to slowly fizzle out again. In an ever-growing competitive market where thousands of techies lost their jobs in recent months due to economic hardship, it’s often not a lack of innovation but rather a great deal thereof that has forced fintech to close down permanently.

Growing Too Big and Too Fast

Entering the fintech market at any given time can be hard, and for entrepreneurs with a stomach for failure, going too hard and too fast, in the beginning, can result in their demise.

Not all trailblazers will see their names in the hall of fame forever. This is not because they had the wrong product or service but often because they bit off more than what they could chew. We see this with a lot of fintech startups that once made it big.

The German-based neobank, Nuri, is a good example of this. The company, which was founded under the flagship name, Bitwala, offered customers euro current accounts, crypto wallets, and digital currency vaults. After enjoying a few successful years, the company announced it was closing in August 2022 and filed for insolvency.

The rise and fall of Nuri came at a time when the crypto market was seeing a peak in volatility . During this period, crypto buyers enjoyed the spike in digital currency prices such as Bitcoin, which hit a record high of $61,000 in November 2021, only to come crashing again a few weeks later.

Expanding at a rapid pace within a market that’s ever-changing and filled with risk and uncertainty, fintech entrepreneurs and startup owners often find themselves having to come face-to-face with the hard challenges that rapid growth can present to their companies.

Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes
The global e-commerce sector is expected to be worth $4 trillion by 2027.

Slow-Adapting Market

Constantly staying ahead of the curve is what fuels startup entrepreneurs. It allows them to break past their own boundaries, and always be a few steps ahead of their competitors if any even exist yet.

While constantly innovating and bringing new developments to the foreground is what helps to drive the industry and grow its influence, sometimes new products and services are introduced to a market not yet ready for them. Often, fintech companies fail because of low market demand for their products and services. However, at other times, the failure happens because their audience is not well-educated or versed on the new technology being introduced, especially concerning finances, leading to a slowdown in funding due to the higher propensity for failure.

Fintech in its entirety is relatively still in its infancy, and there’s a lot that startups need to bring to the market before we can see full-scale adoption across every region. While startups provide the infrastructure, information, tools and resources needed by their customers, they still find it hard to fully grasp how well their innovation will perform in a market that still has limited knowledge about them or find it hard to access and use them in their day-to-day lives.

An example of this situation, outside of fintech, is found in the electric vehicle (EV) industry. The first-ever hybrid car was designed and prototyped in 1900 by Ferdinand Porsche, which was 110 years before the launch of the Cayenne S Hybrid in 2010. Some automakers tried their hand at electric vehicles only to fail and witness the likes of Tesla and Rivian, among others, become market leaders almost overnight.

At the time, the lack of technology and advanced processing machinery held back other EV automakers. The market was very slow to adapt, too. However, today, as a result of government incentives and growing industry demand, manufacturers are switching to more sustainable alternatives and ditching fossil fuel engines. Markets slow in their adoption of innovation, regardless of existing economic performance, can crush companies and industries alike if the entrepreneurs behind them are not versatile and practical enough in their thinking.

Infrastructural Problems

Applications such as robo-advisors, peer-to-peer (P2P ) payments and lending apps, cross-border money applications, and investment or crypto trackers are some of the most common applications found in the fintech industry and are used by millions of consumers each day. However, while these feature-rich applications can control the way consumers conduct transactions and utilize their money, the failure to address specific issues within the infrastructure can have a detrimental effect on any startup, regardless of where they might be in terms of their funding growth. Releasing a product or service with underlying infrastructure issues not only spells doom for a startup but also carries long-term implications that can affect the entire industry.

Infrastructure problems, among other issues, are what led to the downfall of London-based fintech, Wonga, which permanently closed its doors in 2018. Providing short-term online cash loans to consumers, the platform relied on Artificial Intelligence (AI) and decision-making technology to automate risk modeling and its lending business.

However, after writing loans to more than 330,000 clients, it was later found that the AI technology used on Wonga's platforms was lending money to people who couldn’t afford to repay their loans. Later on, the company waived fees and interest payments for roughly 45,000 clients and was involved in numerous scandals throughout its short-lived existence. In the end, Wonga was forced to pay £2.6 million in compensation.

For any fintech startup, understanding how your infrastructure works, such as the technology and the software built on it, is critical to ensuring your longevity in the industry. Failure to address any infrastructural issue or to properly test the infrastructure beforehand not only sets the company up for failure but also puts competitors in a position to find practical solutions for the mishaps.

Turning Failure into Success: Lessons Entrepreneurs Can Learn from Fintech’s Mistakes
Using datasets relating to customer demands can help startups better monitor their performance.

Buyer Timeline Data

The time between when a fintech launches a new product and when it is purchased by a customer or consumer is considered to be the buyer timeline. This timeline helps a company to understand how long it will take before its products enjoy widespread adoption among consumers. It can also help a firm determine the interval or time lag between each consumer from the moment of exposure to final purchase.

There are a lot of quantifying data points that can help businesses properly understand what will influence buyers' behavior, what the market trends will look like in the coming years, and what is needed to strategize for a changing consumer market that requires more innovative and advanced products. These and other facets of the market can help fintech startups develop a range of products and ideas that can put them ahead of their competitors. Unfortunately, a lack of market demands and understanding thereof have seen startups often left in the dark during the period of inception and purchase.

Using datasets and information gathered from customers as it relates to their demand, and market trends can help startups better monitor their performance and track the overall application or usage of their products. However, this problem is more amplified among smaller fintech companies where access to this type of data is limited. For these companies, having a vague idea of what is happening in terms of the buyer timeline is an ongoing challenge that denies them insight into how they can make or adapt their products to be more market-oriented.

Reaching for Longevity

Launching the best and most innovative technology is not always the ticket to success as some fintech entrepreneurs think it to be. Uninformed decision-making and mismanagement of processes are two factors that can negatively influence the performance of advanced tech in a slow-adapting market.

While fintech itself has a range of promising qualities, there are still a lot of obstacles entrepreneurs need to overcome if they seek to have their companies become household names in the financial services industry.

Not everyone can do what fintech entrepreneurs do. Building a successful company is not without challenges and errors, but understanding where the needs of the market lie and addressing key issues with a full knowledge of how to build more versatile technology can form part of how fintech entrepreneurs can reach their goals.

About the Author: Pierre Raymond
Pierre Raymond
  • 13 Articles
  • 10 Followers
About the Author: Pierre Raymond
Pierre Raymond is a 25-year veteran of the Financial Services industry. Driven by his passion for financial technology he has transitioned from being a quantitative stock picker, to an award-winning hedge fund manager, credit risk manager to currently a RISK IT Business Consultant. Pierre is the cofounder of Global Equity Analytics & Research Services LLC (GEARS) and a current partner at OTOS Inc.
  • 13 Articles
  • 10 Followers

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